Key Points

• FDIC as Receiver (“Receivership”) forms a limited liability company (“LLC”) to which loans are conveyed via a Loan Contribution and Assignment Agreement from the Receivership to the LLC.

• In exchange for contributing loans to LLC, Receivership receives sole membership interest in the LLC.

• LLC enters into Participation and Servicing Agreement with Receivership (“Participant”), issuing a Participation Certificate that typically grants an 80% participation interest in the loans (actual percentage is specific to each LLC) to the receivership. The LLC is obligated to service the loans and enter into a Servicing Agreement with a qualified servicer. The LLC is also obligated to enter into a Custodial Agreement with a qualified document custodian.

• Bids are taken and LLC Membership Interest is sold to 3rd party (thereafter, the “LLC Interest Holder”). Bidders must be pre-qualified, have demonstrated financial capacity and the ability to manage and dispose of similar loan portfolios, and have certified eligibility to purchase FDIC receivership assets.

• LLC Interest Holder must provide a guaranty of its and LLC’s obligations by a substantial entity that owns a majority interest in the LLC Interest Holder (or such other guarantor as is acceptable to the FDIC).

• LLC receives a monthly management fee that is specified prior to bid date.

• Cash flows from the loans, after deducting the monthly management fee and advances for such things as taxes, insurance, and property protection expenses, are allocated between the Participant and the LLC, with the Participant entitled to its percentage interest (described above). The Participant’s share of distributable cash is remitted monthly along with a servicing report.

• Transactions typically include a Threshold, which is a stated dollar amount of distributions to the Receivership, including the sales price received on sale of the LLC Membership Interest. Upon reaching the Threshold, the participation interest of the Receiver drops (for instance, from 80% to 60%), with the interest of the LLC Interest Holder increasing by a corresponding percentage (for instance, from 20% to 40%). The Threshold and the amount by which the percentage interest of the Participant changes upon reaching the Threshold are specific to each transaction.

• Threshold amount is established by the FDIC and disclosed prior to the bid date.

• LLC and LLC Interest Holder is responsible for ensuring proper servicing of the loans and maximization of the value of the loans.

• Receivership has the right to require the sale of all remaining g LLC assets when the aggregate unpaid principal balance of the loans has been reduced to 10 percent of the balance at closing or upon the 7th anniversary of the effective date of the Participation and Servicing Agreement (10th anniversary for LLCs with single-family residential loans), whichever occurs first.